The Appraisal Came in Low. Now What?

A low appraisal is one of the few moments in a transaction when a deal that looked done suddenly isn't. It happens most often in exactly the situation sellers want: multiple offers pushing the price past the most recent sales.

Here's what's actually going on, and the options on both sides.

Why do appraisals come in low?

An appraiser isn't measuring how badly buyers wanted the house. They're estimating market value for the lender, based mostly on recent, comparable closed sales, adjusted for differences in size, condition, features, and location.

So when buyers bid a home up, the appraisal can lag. The competition is real, but it hasn't shown up in closed sales yet.

That's exactly what happened on a Wakefield townhouse I sold. It was listed just under $800,000, drew multiple offers, and went under contract around $835,000. The appraisal came in at $815,000. The appraiser gave the most weight to a similar townhouse on the same street that had sold for $775,000, and noted in the report that the home was selling above list because of multiple offers. The full story is here.

What happens to the loan?

The lender bases the loan on the lower of the purchase price or the appraised value. If the buyer planned to put 20% down on $835,000 and the home appraises at $815,000, the lender lends against $815,000. The difference, the "appraisal gap," has to come from somewhere.

What are the options?

There are really four:

1. The buyer covers the gap in cash. Some buyers can and will, especially if they competed hard for the home.
2. The seller reduces the price to the appraised value. That's what happened in the Wakefield sale: the seller came down to meet the appraisal, kept a strong buyer, and closed on schedule at $820,000, still over list.
3. They meet in the middle. The buyer brings some cash and the seller comes down some.
4. The deal ends. Depending on the contract's terms, the buyer may be able to exit, typically under the mortgage contingency.

Which one happens depends on the buyer's cash, how much the seller needs this particular buyer, the timeline, and what the contract says.

Can you challenge a low appraisal?

You can ask. It's called a reconsideration of value, and it goes through the buyer's lender, not directly to the appraiser.

A reconsideration works when it's specific: recent, genuinely comparable sales the appraiser didn't use, or factual errors in the report, like the wrong square footage or a missed bathroom.

It usually doesn't work when it's about enthusiasm, or when the "better comps" are older or a different kind of property. In the Wakefield sale, we submitted three additional sales. The appraiser reviewed them and kept the value: two had gone under contract more than a year earlier, and one was a rehabbed former two-family he considered a different product. That's a normal outcome, and it's why you shouldn't count on a reconsideration fixing the gap.

How do sellers protect themselves before accepting an offer?

When you have multiple offers, look past the top number:

• How much cash does the buyer have beyond the down payment? A buyer with reserves can cover a gap.
• Did they offer an appraisal gap commitment, a written promise to cover some or all of a shortfall?
• What's the down payment? A larger down payment usually means more flexibility.
• What's the financing type? Some loan programs have stricter appraisal requirements.

A slightly lower offer from a buyer who can cover a gap can be worth more than the highest offer from a buyer who can't.

How do buyers protect themselves?

• Know your walk-away number before you bid above the comps. If you'd pay $835,000 in cash but not a dollar more of your own money, say so to your agent.
• Read your mortgage contingency. It's your main protection if the loan can't be obtained on the agreed terms.
• Keep reserves. Don't put every dollar into the down payment if there's a chance you'll need to cover a gap.

Questions people actually ask.

What happens if the appraisal is lower than the offer?

The lender will only lend against the appraised value, so there's a gap. The buyer can pay it in cash, the seller can lower the price, both can meet in the middle, or the buyer may be able to exit depending on the contract.

Can a seller refuse to lower the price after a low appraisal?

Yes. The seller doesn't have to lower the price. But if the buyer can't cover the gap and has a valid way out under the contract, the seller risks losing the deal and starting over.

How do you dispute a low appraisal?

Ask the buyer's lender for a reconsideration of value and provide specific, recent, comparable sales or evidence of factual errors. The appraiser may revise the value or keep it.

Do low appraisals happen with multiple offers?

They're more common then, because competition can push prices above the most recent comparable sales. Planning for a possible gap is part of choosing the right offer.

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This article is general information about Massachusetts real estate, not legal, tax, or financial advice. Every property and transaction is different. For advice on your situation, talk with me and, where appropriate, an attorney, lender, or tax professional.